Let us now consider the most common types of Fintechs and how to build them, using the ‘building blocks’ concept and leveraging partnerships.
A relatively new type of company called a Payment Service Provider or PSP enables the payment of bills, money transfers, and deposits and withdrawals both digitally and physically in a retail shop.
These aren’t banks but can offer some ‘bank-like’ services through a smartphone App that enables customers to pay bills, transfer money and make deposits and withdrawals both digitally and physically in a retail shop. In addition they can provide debit cards that allow their customer to make transactions in online and physical stores or at ATM machines and often use Quick Response (QR) codes to facilitate faster transactions.
They have a large and growing presence participation in developing areas of the world, like Africa, India, Asia and Latin America, and play an important role in the quest for financial inclusion. Good examples are M-Pesa in Kenya, and NuBank from Brasil which started as mobile payment provider with a Mastercard debit card and developed into a bank which today is one the most valuable Fintechs in the world.
However, mobile payment Fintechs are not banks and may not have access to the settlement process of the financial market, depending on each country’s regulation. If they do not, they will partner with a bank – typically one that offers Banking as a Service, as we mentioned earlier.
M-Pesa, for example, has grown to become more than just payment platform. Operating in seven countries across Africa and with over 57 million customers, it also provides peer-to-peer remittance, cash deposit and withdrawals through its network of over 550,000 agents.
Normally, a mobile payment App is the first step for a Fintech, as payment services are purely transactional and have lighter capital requirements and regulations than banks. These regulations are mainly focused on data protection, KYC, and AML. The successful mobile payment Fintechs end up transitioning to become banks or financial institutions able to offer a wider range of products to customers.
A mobile payment Fintech normally cannot provide credit, which requires special licenses, but as mentioned before, they can provide credit to its customers through agreements with regulated credit providers, receiving a commission on each sale.